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Our Equal Weighted Average for the index continued its streak of underperformance—losing to the Cap Weighted measure in nine of the last 10 months of 2015. The largest 25 firms were certainly the bright spot for the year—up 7.5% on average.

The S&P 500 lost 1.8% (price only) in December. Based on the 1957-to-date valuation metrics presented, downside to its historical average decreased by about 2% from last month’s –19% reading.

Despite the mechanical “Lower Risk” signal, we are clearly in a risk-off environment. We recommend a defensive stance towards credits at this point.

We are downgrading U.S. Investment Grade bonds to Neutral in light of the risk-off environment.

The Major Trend Index rose 0.03 in the latest week’s data to 0.92. The Momentum/Breadth/Divergence category, with a moderate gain, is primarily responsible for the improvement. Our shortest-term indicators are solid enough that we wouldn’t rule out a narrow move to new cycle highs in the DJIA and S&P 500 during the first week or two of 2016, but our longer-term work still points toward considerable cyclical risks for equities. The Core and Global Funds both remain positioned defensively with net equity exposure of 39%.

The Major Trend Index inched up 0.01 in the latest week’s data to a ratio of 0.89, with several sizable swings within its five indicator groupings largely cancelling one another out. This work remains consistent with a high-risk environment for equities, and both our Core and Global Funds are positioned defensively with net equity exposure of 38%.

The Major Trend Index reverted to negative territory based on data through last week, dropping 0.10 points to close at a ratio of 0.88. We assume that a cyclical bear market remains underway, and have reduced net equity exposure to 38% (from 42%) in both the Leuthold Core and Global Funds via a 4% short position in the SPDR S&P 500 ETF Trust (SPY). We’d view any further advance in U.S. blue chip stocks as an opportunity to increase hedges even further, provided the rally maintains its internally weak character.

The second month of Q3 2015 earnings reports registered an Up/Down Ratio of 1.11. On its own, the month of November was particularly weak with a stand-alone Up/Down Ratio of 0.97.

The S&P 500 gained 0.1% (price only) in November. Based on the 1957-to-date valuation metrics presented, downside to its historical average increased by about 1% from last month’s –18% reading.

Our Ratio of Ratios Small Cap premium bounced off its historical median as Large Caps underperformed in November.

Our AdvantHedge gross composite lost 1.6% in November, lagging the inverse performance of the S&P 500 (+0.3%) and NASDAQ (+1.3%), but outpaced the inverse of the Russell 2000 (+3.3%).

Select Industries gross composite was nearly flat in November and is up 2.8% YTD.

Global Industries (based on Global Industries, L.P. gross return) gained 0.9% in November, besting the MSCI ACWI (-0.8%).

MTI Remains In Neutral Territory; Equity Exposure At 42%

The blue chip U.S. indexes have gone nowhere in 2015, and we expect bulls will soon write off the year as the “pause that refreshes.” But what’s been refreshed?

While the sequence of index peaks traced out YTD is not exactly a textbook one, the market’s internal diffusion is comparable to that seen at many major tops, including 2000 and 2007.

While the S&P 500 had erased all but 2% of its August loss as of early December, Small Caps and the “average stock” had recouped only about half their correction losses. Not good.

The year has been especially tough on managers who might have shared our cyclical worries over the stock market, but who’ve elected to stay fully invested via seemingly lower risk value approaches.

We tracked the “legal” insider actions of NYSE specialists for many years, until a crackdown on that business model early last decade rendered our old data sets virtually irrelevant.

The S&P 500 Information Technology sector has just broken out to a 15-year relative strength high, and it jumped two spots to the top scoring broad sector position. The breakout in Tech provides a rare example in which foreign market action presaged a major domestic move.

Following August’s market break, we produced a set of potential downside targets derived from a mix of technical retracements, “average” bear market declines, and an assumed reversion-to-the-median in S&P 500 valuations. Little has changed here.